Retirement Plans Must be Amended This Year

Written by Fred Reish

Plan sponsors of most private-sector qualified retirement plans are facing a critical compliance deadline: December 31, 2026. By that date, their plans must be amended to reflect a series of legislative and regulatory changes, primarily from the CARES Act (2020), the SECURE Act (2019), and the SECURE 2.0 Act (2022), along with related IRS guidance.

This deadline applies to both individually designed plans and pre-approved plans. (Note: most collectively bargained (union) plans have a later amendment deadline.)

While the law and this article refer to “amendments”, the changes are so extensive that plan documents will be fully restated to reflect all of the changes.

Plan sponsors with individually drafted plans should begin process of drafting new plan documents within the next few months.  It is a lengthy and complex task that involves filing the plan documents with the IRS for approval.

For plan sponsors who use plans that their service providers draft and have pre-approved by the IRS, there is more time and less work.  In all likelihood, the service providers will send updated plan documents to their plan sponsor clients late in the third quarter or early in the fourth quarter of this year.  But plan sponsors are still responsible for making sure they get the restated plans documents, review the documents (including especially the variable provisions—usually in an adoption agreement), and then sign the documents on a timely basis.

The plan documents must include the mandatory requirements in those laws and must also include the optional provisions that were adopted by plan sponsors.  The failure to timely sign plan documents that include those mandatory and optional provisions could result in plan disqualification.

Mandatory Requirements

At a minimum, plan documents must be updated to incorporate mandatory legal changes that have already become operational. These include, for example:

• SECURE Act provision that 401(k) plans include long-term part-time (LTPT) employees for deferrals.
• SECURE 2.0 provision that changed the definition of LTPT employees and extended it requirements to 403(b) plans.
• SECURE 2.0 provision that catch-up requirements by higher-paid participants be treated as Roth after-tax deferrals.

Those and other mandatory provisions of the law required that plans be operated in compliance with requirements as of the specified effective dates—even though the plan wasn’t written to require it. Now, formal amendments are needed to retroactively document the law changes.

Optional (Discretionary) Amendments

Many provisions under these laws (and especially the SECURE 2.0 Act) are optional. Plan sponsors may choose whether to adopt them. Examples include:

– Matching contributions on student loan repayments
– Emergency savings accounts linked to the plan
– Enhanced catch-up contributions for ages 60–64
-Permitting participants to elect to treated vested employer contributions as Roth contributions.

If one or more of these optional provisions were adopted, it must now be formally included in the plan document by the December 31 deadline.

Next Steps

Plan sponsors should coordinate with counsel, recordkeepers, and document providers to confirm which provisions have been implemented and ensure timely restatements of their plans.  For individually drafted plans, it would be best to start now.  For pre-approved plan documents from providers

Failure to amend by the deadline can create qualification risks, although correction programs may be available.

Concluding Thoughts

Most plan documents—particularly for small and mid-sized firms—are pre-approved, or “prototype”, documents.  That means that the providers will prepare the amended and restated plan documents and send them to plan sponsors later this year.  But, to be safe, plan sponsors should check with their providers and make sure that the process is underway and to set reasonable expectations about the timing.  Once a plan sponsor has received the restated documents, they should be reviewed. Mistakes can be made in preparing documentation and the consequences can be difficult.

As a suggestion, plan sponsors may want to take this opportunity to meet with their providers and advisers to talk about the optional provisions in the new laws and to see if any of them would be beneficial for the firm and its employees.  Because of all the work in learning and complying with the mandatory provisions of those laws, it has been easy to miss the opportunities available through the optional provisions.